On March 21, 2019, the Department of Justice (“DOJ”) announced that the University of Wisconsin-Madison (the “University”) agreed to pay $1.5 million to settle allegations that it had violated the False Claims Act (“FCA”) by failing to properly credit rebates and discounts to costs allocable to federal grants and awards obtained by the University. While cases involving defense contractors and Medicare or Medicaid providers tend to dominate FCA headlines, the University’s settlement serves as a reminder that the FCA applies to all recipients of federal grants and awards. With the United States government awarding over $500 billion in federal awards annually, this recent settlement underscores the importance of careful cost accounting practices for the many institutions and organizations benefitting from federal money each year.
The University, as a public research institution, receives substantial awards from the federal government to conduct research in fields common to higher education institutions such as science, health care, and engineering. The University allegedly failed “to properly account for rebates and credits to reduce costs allocable to” these awards. Specifically, the University is alleged to have participated in rebate and discount programs with various vendors, which in turn resulted in the University’s receipt of rebates and discounts. These rebates and discounts were used by the University to offset purchases of supplies and equipment but were not credited to the University’s federal awards. The
University’s actions contravened Office of Management and Budget (“OMB”) cost principles governing the awards which require applying any rebates and discounts obtained in connection with a federally awarded program to the grant or award amount. The government alleges the University’s failure to do so in this case resulted in “overcharging” the government.
The University also allegedly failed to comply with its own accounting practices related to rebates and discounts. In connection with its federal awards and grants, the University must provide the government with a Cost Accounting Standards Board Disclosure Statement, which contains information on an awardee’s cost accounting practices. The DOJ noted that the University’s accounting failed to comply with its own disclosure statement “as it relates to accounting practices for service centers.”
This settlement comes at a time when many elite universities find their admissions practices under unwanted scrutiny as a result of the much-publicized reports of a widespread admissions bribery scandal. While the recent bribery-related allegations are somewhat new to the world of higher education, FCA-related actions and investigations have been far more common, with schools such as Duke University in North Carolina and North Greenville University in South Carolina recently settling FCA actions. The University of Wisconsin settlement serves as a reminder of the requirements that universities, as federal awardees, must follow as conditions of their awards and underscores the importance of careful accounting practices for all federal award recipients.